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LIC Must Adopt Industry Best Practices
The article argues that the Government of India must set a realistic initial public offer price band for the Life Insurance Corporation, taking into account the insurer’s risks and weaknesses. The LIC’s IPO is currently an offer for sale wherein the GoI will receive all proceeds. The LIC must also receive a share of the initial public offer proceeds to strengthen its solvency and profitability.
Russia may have done the Government of India (GoI) a favour by invading Ukraine. The ensuing volatility in capital markets left the GoI with no option but to postpone the Life Insurance Corporation of India’s (LIC) initial public offering (IPO), which was set to open on 10 March 2022. One hopes that the GoI will use this window to set a realistic price band and expand the use of proceeds to include provisions to allow LIC to receive a fraction of the IPO proceeds. According to LIC’s draft red herring prospectus (DRHP) dated 13 February 2022, the IPO is an offer for sale (OFS) with the GoI being the sole recipient of the IPO proceeds.
There is considerable variation in media reports regarding the stake the GoI will be divesting and the IPO price. Press reports indicate that the GoI may sell 5.0% to 10.0% of its stake in LIC through the IPO at price bands ranging from `400–`600 to `2,000–`2,100 per share.1,2 However, media reports are unanimous on two counts. First, the LIC IPO will be India’s largest to date, overtaking One 97Communications’ (Paytm) `18,300 crore IPO in November 2021. Second, the GoI is targeting to raise `60,000 crore ($7.91 billion) or 77% of its financial year (FY) 2023 disinvestment target of `78,000 crore. This implies that the GoI may offload a minimum of 5.0% stake at `2,000 per share to a maximum of 10.0% at `1,000 (Table 1).
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